Stocks & Commodities V. 31:6 (25): Q&A by Don Bright

Stocks & Commodities V. 31:6 (25): Q&A by Don Bright
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Q&A by Don Bright


I am trying to learn more about technical analysis and trading in general. I am getting better, I think, but would like to have a decent explanation of pivot points. I see them on various websites, including yours, but I donít know how to use them. Can you help?


Iím glad you have decided to learn more about technical analysis, and glad that youíre reading the best magazine in the field, Technical Analysis of Stocks & Commodities. Now, letís discuss pivot points.

I post two primary factors every day to my Daily Trading Info page at Stocktrading. com. One is the daily fair value (FV) numbers. This number, provided by my friend Hank Camp (www.programtrading. com), helps us in two ways. In the premarket, we can calculate where the market will open ó up or down ó and by about how much. We take the closing price of the S&P 500 (SPX on my monitor) and subtract the FV number to give us what is called parity. Parity is where the market would open if everything were flat from the previous day, which rarely happens. We then subtract the actual number of S&P futures contracts. If the S&P futures indicate that the market is opening down eight SPX points, then, based on this information, we know that we will place opening-only orders on the buy side at predetermined pricing. It is similar if the market is opening up, except we sell short, counting on a retracement in both instances.

The pivot points that we use are the same levels used by the exchange floor traders and other professional futures traders. These levels tend to act as caution signs or small support & resistance levels. These levels are presented as primary pivot support levels 1,2, and 3, and resistance levels 1, 2, and 3. These levels are calculated using the previous dayís high, low, and close numbers.

Here is an example of how they can be calculated:

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